The report was published on the side-lines of the EBRD’s 31st annual meeting and business forum, which kicked off on Tuesday in Marrakesh with a special focus on the impacts of the Russian-Ukrainian War on the bank’s countries of operations.
On a calendar year basis, the report expects Egypt’s GDP growth forecast to slow down to 3.1 percent in 2022 — down from 7.2 percent in 2021 — before stepping up to 6 percent in 2023 to be one of the top countries in the Southern and Mediterranean region in terms of output growth projections.
The report also said that this upgrade comes despite the impacts of the war in Ukraine that have resulted in an increase in the prices of wheat, food products, and petroleum.
Furthermore, it added that Egypt’s economic recovery in the first half (1H) of FY2021/22 (July – December 2021), when the country’s real GDP growth averaged 9 percent was fuelled by improvements in tourism, manufacturing, construction, wholesale and retail trade, and agriculture sectors, adding that this recovery will continue through the coming FY.
Yet the report pointed out that Egypt is a net oil importer and one of the world’s largest wheat importers, and it relies on imports for other food commodities as well, all of which are expected to be subjected to price hikes over both the short and medium term.
“On the upside, higher demand and prices for Egypt’s gas exports could sustain growth in the medium term, and the International Monetary Fund (IMF)-supported programme could support reform implementation and investor confidence. The latter could also help manage external imbalances, as might the recent EGP devaluation,” said the report.
Egypt is currently in discussions with the IMF for a fresh loan deal to resume the country’s second wave of reforms and address the severe impacts of the Russian-Ukrainian conflict.
Additionally, BNP Paribas expects Egypt to secure the loan sum under the IMF’s extended fund facility (EFF) instrument, the same one Egypt obtained a $12-billion loan from in 2016 to implement its first wave of economic reforms through a three-year programme that ended in July 2019, with an expected value of $10 billion.
For the downside risks to Egypt’s economic performance, the report noted that they include volatility in global energy and food prices and the possibility of a global economic slowdown across key sectors and supply chains.
The EBRD also confirmed that Egypt remains the country with the most EBRD operations in the Mediterranean for third year in a row.
It is worth noting that the IMF revised up Egypt’s real GDP growth during April by 0.3 percent to reach 5.9 percent, up from the 5.6 percent expected in January, before slowing down to 5 percent in 2023, the fund announced on Tuesday.
Also in April, the World Bank maintained Egypt’s real GDP growth at 5.5 percent in FY2021/22, downgrading its forecast for FY 2022/23 to five percent, down from the 5.5 percent expected in January.
Both Standard and Poor’s (S&P) and Fitch Ratings recently affirmed Egypt’s credit rating at B and B+, respectively, with a stable outlook.
The EBRD has financed 144 projects across various sectors in the Egyptian market since the onset of its operations in the country in 2012, with the current project portfolio exceeding €4.1 million.
On a regional level, the report said that the war in Ukraine has impacted the EBRD’s countries of operations profoundly, projecting their growth to inch up by 1.1 percent in 2022, which represents a 0.6 percent downward revision compared with the forecast made in March 2022 and a 3.1 percent downgrade compared with the forecast made in November 2021.
“The revision since March is driven mostly by a larger-than-previously-expected contraction in Ukraine as the war drags on. Growth in the EBRD’s regions is forecast to recover to 4.7 percent in 2023. A downward revision of 0.3 percentage points since March reflects mounting inflationary pressures in the global economy and the EBRD regions,” the report said.
“Projections are subject to major downside risks should hostilities escalate or should exports of gas or other commodities from Russia become more restricted. For instance, in a scenario where gas supplies are further disrupted, output per capita in the EBRD regions could be 2.3 percent lower in 2022 and 2 percent lower in 2023 than in the baseline scenario. Commodity and food prices have also increased sharply in recent months,” it further explained.